Price comparison sites: deal or no deal?

They did not exist a decade ago, but now it is estimated that the price comparison website industry is worth more than a billion pounds a year.

When it comes to making financial decisions, from switching energy providers to buying car insurance, more than six million of us log on to them every month.

But how reliable are they?

The idea is simple: type in what you're looking for and the site instantly collates quotes from scores of different companies, listing them in price order, usually with the cheapest at the top.

They have transformed the way we shop for a string of products and services - saving us the bother of ringing round lots of different companies for quotes.

And the industry is booming - and with around a hundred different price comparison sites out there, it is a bitterly competitive market.

Commercial arrangements

But using the sites is not always straightforward according to Professor Catherine Waddams, from the University of East Anglia's Centre for Competition Policy.

"What we find is that people really struggle to find the best deal, so we look to consumers who are looking to try and get a better deal, who are just trying to save money," she says

"About a fifth of them manage to get the best deal - but a fifth end up paying more. "

When we look at different websites, some of them show all of the providers, some of them show only some. I expect that is to do with the incentives they get from switching people to different companies.

Professor Catherine WaddamsCentre for Competition Policy University of East Anglia

Most price comparison sites have commercial arrangements with the companies they feature.

Some involve a commission fee payable when someone buys through the site.

Others receive a click-through payment every time a customer clicks from a price comparison site through to a company's own website.

Professor Waddams acknowledges that price comparison sites have opened up the market, and given consumers more information than ever before.

But she also cautious about the impartiality of the industry.

PRICE COMPARISON SITES - MONTHLY HITS*

Moneysupermarket.com - 4.046m

Gocompare.com - 1.039m

Confused.com - 1.026m

Uswitch.com - 0.701m

Comparethemarket.com - 0.304m

*Monthly average Oct 2007-Oct 2008

Individual visitors aged 15+

Excludes traffic from public computers, mobile phones & PDAs

Source: comScore

"They are paid by the people who switch to them, so that introduces the possibility of their incentives to be rather skewed," she says.

"So when we look at different websites, some of them show all of the providers, some of them show only some and I expect that is to do with the incentives they get from switching people to different companies."

Industry tactics

For many firms, price comparison sites provide the majority of their business - so getting onto the first results page is seen as crucial to maximising sales.

The Money Programme spoke to one insurance broker who described how he makes his policies as cheap as possible by "stripping out" some of the cover.

He has found that more than 60% of his business is now coming through price comparison sites - but is worried that customers may not check their policies until it is time to claim.

You enter the comparison site, and within a few minutes your phone is ringing and somebody is trying to flog you something you don't want - and that's not acceptable

Lord LipseyFormer chair of the Financial Services Advisory Panel

"Some sites automatically default to a bigger excess than you wanted," he says.

"You can very quickly click through to that and not realise, and take out a policy. Then an incident occurs where you have to claim against the policy, and you find you've got very limited cover or you've perhaps got to pay the first £1,000 of the claim."

Passing on details

And what happens to your information after it is entered into a price comparison site?

Increasingly, consumers' details are being passed on by price comparison sites to partner websites, who then contact you by phone, email or text.

It is something that's concerning Lord Lipsey, who until this week was chair of the Financial Services Advisory Panel.

Price comparison sites are being used, he says, "as a tool to spark sales".

"You enter the comparison site, and within a few minutes your phone is ringing and somebody is trying to flog you something you don't want - and that's not acceptable."

Review

So whose responsibility is it to regulate this billion pound industry?

Perhaps surprisingly, while the products sold are regulated, there is no single body dealing with price comparison sites and a recent attempt at self-regulation fizzled out earlier this year.

The Financial Services Authority has been reviewing how price comparison sites compare and sell insurance products.

And it says that while they have made significant improvements, it is still concerned about policy excess levels, and assumptions made by some sites to obtain quotes.

Which? advises people to check at least two or three comparison sites

"We think the rules are right, we just need to make sure that the firms are playing according to the rules," says Dan Waters of the FSA.

"We have seen some short-falls and we are getting people to fix them. I wouldn't say it's completely perfect yet and I don't suppose we will ever live in a completely perfect world."

'Do your homework'

There is little doubt that price comparison sites can help customers navigate through complicated financial decisions.

But according to the Editor of Which? Money, Martyn Hocking we still need to do a bit of homework ourselves.

"Don't only visit one site as a result of seeing the TV commercial" he says.

"In reality, the prices vary significantly between each site - and no one site has all the best deals, so you really need to visit two or three sites."

And he says that customers need to look beyond price when making decisions.

"If it's something like insurance, you need to look at how much cover you are getting, because it could be that the cheapest product is cheap, because it actually doesn't offer adequate cover."

Price Comparison Sites: deal or no deal?: 1930 on BBC 2 on Friday 5 December

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